The IMF Removes Borrowing Cap On Rescue Facility

From Zero Hedge:

...today the IMF announced it "expanded and enhanced its lending tools to help contain the occurrence of financial crises." As a result, the IMF has as of today extended the duration of its existing Flexible Credit Line (FCL) to two years, concurrently removing the borrowing cap on this facility, which previously stood at 1000 percent of a member’s IMF quota, in essence making the FCL a limitless credit facility, to be used to rescue whomever, at the sole discretion of the IMF's overlords. Additionally, as the FCL has some make believe acceptance criteria (and with countries such as Poland, Columbia, and Mexico having had access to it, these must certainly be sky high), the IMF is introducing a brand new credit facility, the Precautionary Credit Line (PCL), which will be geared for members with sound policies who nevertheless may not meet the FCL’s high qualification requirements. In other words everyone. In yet other words, the IMF as of today, has a limitless facility to bail out anyone in the world, without a maximum bound in how much is lendable. One wonders who would be stupid enough to take advantage of the gullibility of IMF's biggest backers (the US), to borrow an infinite amount of money for any reason whatsoever... And just what all this means for the imminent explosion of the amount of money in circulation...Not to mention the brand new Ben Bernanke smokescreen of having a new justification to print a few trillion dollars when Europe unexpectedly collapses yet again.

http://www.zerohedge.com/article/imf-removes-borrowing-cap-rescue-facilities-anticipation-europe-crisis-20-us-prepares-print-

Intel CEO Criticizes Obama Policies

Intel CEO Otellini used strong words to bash Obama policies. We understand where this is coming from, but corporate taxes are not the only problem if one sees the bigger picture.

The semiconductor industry is a government subsidized one across the globe.

Meanwhile, Intel cut revenue forecast and its share halted last week. Perhaps the slowdown of Intel points to changes in the semiconductor investment cycle.(The Korean semiconductor companies have taken advantage of this cycle too)

There was a debate on how to restore American competitiveness on HBS site. Otellini made a comment in a segment and I posted my comment in response to his comment.

Otellini wrote:

Ed is right; it's time to take the long view.

More to the point, it's important for our country to identify, prioritize, and train leaders for what we deem the "industries of the future." Where is our long-term comparative advantage? I don’t think it’s in the assembly of low-value-added components, or in building motherboards. Those transactions are in fact done relatively cheaply overseas. Israel, Ireland, Singapore, or China will put up hundreds of millions of dollars for companies to put factories there. That’s a lot of money. Comparable incentives currently don’t exist in the United States. The lack of those incentives is a matter of policy that ought to be examined with a fresh eye. Do we want to encourage the industries of the last century, or of the next?

One area of opportunity is in ensuring a strong IT supply chain for military and scientific research. The United States must be an integral supplier -- indeed, the home base -- for the research and development of military and scientific technologies and applications. This is a national security issue as much as an economic one. In the past, research in support of the military and space efforts helped create the modern microelectronics industry.

Improvements in public education, particularly in math and science, certainly have to be another pillar of future competitiveness -- as President Obama has made clear in various recent addresses. In fact, the base problem of U.S. competitiveness isn’t just the wage inflation of the United States versus, say, China, but the overall capability of the U.S. workforce. We ought to be the place where creative and profitable ideas are born independent of where they end up being manufactured. Without a much stronger emphasis on math and science in the school systems, that’s not going to happen.

It’s a multigenerational problem perhaps, but it can be solved, with the right emphasis and a national mandate. We’ve been there before, after all. Remember Eisenhower? Sensing that we were lagging behind the Russians on rockets, he mandated the hiring, training, and empowerment of highly qualified math and science teachers (at high school and college levels) who taught the children who attended top universities and who became the NASA engineers behind the moon landing.

We can also apply IT productivity gains to under served industries like health care and greatly lower costs through lower error rates, less use of paper, and fewer redundancies. Those are technology problems, and they could create great new industries -- but they require us to basically blow up existing infrastructure.

The whole notion of where we want to go with green is equally compelling; that ought to be the space race of this generation. Rather than put a man on the moon, let’s build a safe, affordable car that gets 250 miles on a simple charge of electricity -- and let’s have a $100 million grand prize for the first person who develops a battery that can do that. That’s the kind of stimulating program that would generate interest in math and science -- and it’s a small investment compared to a trillion-dollar stimulus package.

Paul S. Otellini

President and CEO

Intel Corporation

I wrote:

I agree on several points Mr. Catmull and Mr. Otellini raised. Taking the balanced view, long-term, short-term, in the R&D portfolio is critical in the high-tech business. And yet, with all due respect, I have to disagree on some points.

Of course, the U.S. has to continuously develop the cutting-edge emerging technology in the upstream sectors of the value-chain like any other countries with the high-tech base should do. As I mentioned in the comment section of the last thread (Dr. Tyson’s article), the U.S. has retrained the best technology in many fields like software, specialty logic chips, and capital goods. In my humble opinion, the U.S. can’t afford to lose any manufacturing facilities no matter how low-income producers they can be in the mean time.(I do understand Mr. Otellini’s point setting up or maintaining a capital-intensive low value-added plant in the U.S. is costly and may be uncompetitive, but that’s not my point.)

My point is that given the America’s economic fundamentals, running any production operation which can generate and keep jobs is much healthier than being a deadbeat borrower and consumer of products including commodities. Of course, living a modest lifestyle, reducing deficits and reforming the financial sectors are all important for the recovery of the American economy, not to mention retaining top-notch talent in the high-tech sector, building industrial commons, practicing genuine capitalism and fair trade, and so on.

The U.S. faces 1.5 trillion dollar deficit for 2009, 10% of GDP. Importantly, the U.S. is facing high structural unemployment. I think that’s what the former CEO of Intel, Craig Barrett meant when he said “Intel will be okay. We can move to wherever in the world we can be most productive and innovative. But I’m a grandfather, and I really wonder how my grandchildren are going to earn a living”, quoted by Mr. Prestowitz in the comment section of the last thread.

I wholeheartedly agree with him. I would be inclined to worry less about big high-tech companies. For example, Intel is a well-run company. I’m sure it will survive.

I’m more concerned about the overall landscape of the American economy and the health of SMEs which hold up the large portion of the economy.

I encourage you to watch Bill Moyers’ interview on PBS (He interviewed MIT professor, former IMF chief economist Simon Johnson and U.S. Rep. Marcy Kaptur (D-OH) on the state of the economy. http://www.pbs.org/moyers/journal/10092009/watch.html) to see the U.S. can afford to lose any kind of manufacturing facilities. The U.S. is losing capital so rapidly, so I wonder how many U.S. firms can engage in any kind of long-term R&D investment within the U.S in the next 5 or 10 years in a practical sense.

Again, as I commented in the last thread, one has to understand how to restore American competitiveness in the larger context.

On a personal note, I’m not an American, but I do care about the well-being of America. I worked for manufacturing companies in a small town of the Midwest and the Silicon Valley. I remember that manufacturing factory jobs were supporting the local economy. I’m well aware of what’s been going on in the U.S. in terms of the financial market and high-tech sector, but please correct me if I am mistaken. I’m also well aware of how the Chinese are catching up fast in many areas although they’ve got many potential problems. It is disheartening to see the U.S. sinking like this.

http://blogs.hbr.org/hbr/restoring-american-competitiveness/2009/10/outsourcing-in-and-of-itself.html

His tone seems to have changed quite a bit since then, focusing more on job creation in the
U. S.

From CNET:

Otellini's remarks during dinner at the Technology Policy Institute's Aspen Forum here amounted to a warning to the administration officials and assorted Capitol Hill aides in the audience: unless government policies are altered, he predicted, "the next big thing will not be invented here. Jobs will not be created here."

Otellini singled out the political state of affairs in Democrat-dominated Washington, saying: "I think this group does not understand what it takes to create jobs. And I think they're flummoxed by their experiment in Keynesian economics not working."
http://news.cnet.com/8301-13578_3-20014563-38.html

Korea Taking Measures to Bolster the Housing Market

Attempting to reinflate the housing market is a global thing. We have seen the actions of the government and central banks across the world to keep the upward movement in house prices alive. Yet we know that without a real economic engine (e.g., job creation and rising income) supporting it, it couldn’t go on that long.

From Yonhap:

South Korea will temporarily ease financial borrowing and tax rules to help bolster the local housing market, which has experienced a sharp drop in transactions since late last year, the government said Sunday.

The plan announced jointly by the finance, public administration, and land and construction ministries, as well as the Financial Services Commission calls for raising the ceiling on the amount of money people can borrow to buy a home, and to delay hikes in registration and acquisition taxes for people who purchase new residences.

http://english.yonhapnews.co.kr/business/2010/08/29/47/0501000000AEN20100829001900320F.HTML

Morgan Stanley: Government Defaults Inevitable

From Bloomberg:

Investors will face defaults on government bonds given the burden of aging populations and the difficulty of securing more tax revenue, according to Morgan Stanley.

“Governments will impose a loss on some of their stakeholders,” Arnaud Mares, an executive director at Morgan Stanley in London, wrote in a research report today. “The question is not whether they will renege on their promises, but rather upon which of their promises they will renege, and what form this default will take.” The sovereign-debt crisis is global “and it is not over,” the report said.

Borrowing costs for so-called peripheral euro-region nations such as Greece and Ireland surged today, resuming their ascent on concern that governments won’t be able to narrow their budget deficits. Standard & Poor’s downgraded Ireland’s credit rating yesterday on concern about the rising costs to support nationalized banks.

Mares said debt as a percentage of gross domestic product is a false indicator of an economy’s health given it doesn’t reflect governments’ available revenue and is “backward- looking.” While the U.S. government’s debt is 53 percent of GDP, one of the lowest ratios among developed nations, its debt as a percentage of revenue is 358 percent, one of the highest, the report said. Conversely, Italy has one of the highest debt- to-GDP ratios, at 116 percent, yet has a debt-to-revenue ratio of 188, Mares said.

“Outright sovereign default in large advanced economies remains an extremely unlikely outcome, in our view,” the report said. “But current yields and break-even inflation rates provide very little protection against the credible threat of financial oppression in any form it might take.”

Mares once worked at the U.K.’s Debt Management Office and is a former senior vice-president at credit-rating company Moody’s Investors Service.

“Note that a double-dip recession would not invalidate this conclusion,” Mares’ report said. “It would cause yet further damage to the governments’ power to tax, pushing them further in negative equity and therefore increasing the risks that debt holders suffer a larger loss eventually.”

Investors’ concern that the U.S. may fall back into recession has grown in recent weeks as U.S. economic data missed economists’ estimates. A Citigroup Inc. index of U.S. economic data surprises fell to minus 59 last week, the least since January 2009...

“The conflict that opposes bondholders to other government stakeholders is more intense than ever, and their interests are no longer sufficiently well-aligned with those of influential political constituencies,” such as elderly voters and their claims on pensions and health insurance, Mares wrote.

http://www.bloomberg.com/news/2010-08-25/morgan-stanley-says-government-bond-default-is-question-of-how-not-if-.html

Why Aren’t the U.S. Small Businesses Hiring?

Mish has written a series of pieces on SMEs. This post runs the emails of the small business owners to Mish. Their anecdotal stories are telling.

As one can see, the U.S. small businesses are hurting. Policy matters.

Beyond QE and deficit spending, the U.S. losing productive engine is what is really forcing the fall of the U.S. Again, it’s disheartening to see the U.S. sinking like this.

I’ve read Mish’s blog for several years. Among many other econ blogs, his blog is the one I read on a daily basis, and I’ve learned a lot from him. I like his intellectual integrity.

http://globaleconomicanalysis.blogspot.com/2010/08/another-atlas-shrugs-small-business.html

Parallels between the 1997 Financial Crisis and Now Re Economic Fundamentals

How are things in terms of economic fundamentals similar or different between the 1997 financial crisis and now?

Some economic indicators to consider in assessing similarities and differences:

NPL ratio
Debt burdens (debt to GDP ratio, private sector and household debt levels)
Unemployment rates
Temporary worker increase statistics
Manufacturing job growth rate
Middle class income statistics
Trade surplus/deficit by industry and country
Foreign shareholder increase statistics
Housing price index
Wage Gap between CEO and lower workers

The Secret of Oz

It is a two hour documentary called “The Secret of OZ”. One can watch it for free now. One can get the parts that show the root cause of the worldwide economic downturn.

http://www.swarmusa.com/vb4/content.php/318-Bill-Still-%E2%80%93-The-Secret-of-Oz

Tony Robbins’ Warning on the Stock Market

He keeps saying “get smart and educate yourself”.

See it youtself.

http://www.wallstreetwindow.com/content/node/16992

이사람 뿐만 아니라 비슷한 경고들이 나오고 있으니 참고할 필요가 있겠지요.

잘 아시겠지만 우리는 초기 시점에 있을 뿐입니다. 디레버리징 프로세스가 끝나려면 몇 년이 걸릴 지 모르겠지요.

무엇보다도 우리 모두 영육 간에 건강 잘 지킵시다. 큰 흐름을 보되 우리 개개인의 삶이 얼마나 소중한 지를 상기하면서, 우리에게 주어진 시간을 잘 살아내야 할 권리가 있다고 봅니다. 모두들 화이팅입니다.

The Myth of Market-Based Economy

Are the advanced economies in North America and Europe exercising a market-based economy?

It is widely recognized that a state-controlled economy fuels market distortions. Yet, markets in an advanced economy have been rigged as well.

Many argue that the government-corporate kleptocracy in the so-called market-based economies is as bad as one in state-controlled economies.

In the wake of the 1997 financial crisis, the IMF demanded Korea adopt austerity measures including capital market liberalization in exchange for emergency funding it provided.

Foreign ownership of financial institutions has been significantly increased. Many were hopeful that market forces instead of government interventions would help Korea’s financial sectors fix their problems and advance their practices. However, that didn’t turn out to be the case. Korea has completely opened its stock market to the West since the 1997 financial crisis. According to the FSS (The Financial Supervisory Service), as of July, foreign investors held about 30 percent of Korea’s listed shares. Foreign capital now controls some major corporations like Samsung.

It is notable that despite Western pressures, China is not opening its capital market including currency trade and banks to the West.

Structural Problems Matter

The predicament we are facing in many parts of the world: high unemployment, increasing wealth disparity, stagnating/dwindling incomes, high debts, credit contraction, sovereign default risks, weakening productive capacity, trade imbalance, declining standard of living, rigged equity markets, insolvent banks, broken local governments, and so on. All these problems are structural.

Again, we are not in cyclical recession.

Andy Xie: How the U.S. Stimulus Causes Inflation in Emerging Economies, Then Come Back to Harm the U.S. Economy

Andy Xie’s latest article on the world economy.

If one reads Andy Xie’s article carefully, s/he would understand: who is the culprit of the predicament that the world finds itself in. We live in a globalized society, like it or not.

From Bloomberg:

American pundits, Nobel laureates included, are predicting Japan-style deflation for the U.S. and Europe. They are urging the Federal Reserve to pursue another round of quantitative easing to stop the onset of an Ice Age for Western economies. The Fed didn’t oblige at its last meeting, but it threw a bone to the deflation crowd by promising not to pull money out of its previous round of asset purchases to stimulate a recovery.

On the other side of the world, consumer prices are surging. Emerging markets as a whole now have an inflation rate of more than 5 percent. India is registering price increases of more than 13 percent. China’s are more than 3 percent. But it surely feels a lot higher for average Chinese.

Much of the “heat” comes from the property market in emerging markets. Million-dollar flats in Mumbai have panoramic views of the city’s slums. Hong Kong’s real-estate prices have almost reclaimed their 1997 peak, though the economy has barely grown since then in per-capita terms. Overpaid bankers who pay 15 percent income tax in Hong Kong are stretched to buy Beijing or Shanghai properties. Moscow is somehow always near the top of the list of the world’s most expensive cities.

The emerging markets are on fire.

Deflation prophets in the West are in for a rude awakening. Eastern fire will turn Western ice into a mess, and 2012 looks like it will be the year of melting. The fuel for the fire is coming from deflation-fighting stimulus programs, such as that of U.S. President Barack Obama.

Just as water flows down, stimulus affects low-cost economies more, wherever it is initiated. As the West pours money into the global economy through large fiscal deficits or central banks expanding balance sheets, the emerging economies are drowning in excess liquidity. Everything is turning red-hot.

A more likely scenario is that the West will have to stop stimulus programs when inflation spreads to it from the emerging economies. The most immediate channel is through rising commodity prices. It’s a tax on the West to benefit emerging economies that produce raw materials. That’s the irony: The stimulus in the West can immediately bring harm to itself. It’s also the magic of globalization.

In 2012, the Fed will run out of excuses not to raise interest rates. As the excess liquidity in the global economy will be gigantic by then, the tightening will probably trigger a global crisis as asset bubbles burst.

http://www.bloomberg.com/news/2010-08-17/china-drains-obama-stimulus-meant-for-u-s-economy-commentary-by-andy-xie.html

Global Wage Arbitrage and Sustaining Productive Capacity

The U.S. firms have offshored its manufacturing jobs in pursuit of short-term profits. As a result, the U.S. is now losing its manufacturing base.

Even China is losing its wage competitiveness, so MNCs are moving its production facilities to other South Asian countries. For instance, Intel reportedly moved some of its manufacturing to Vietnam.

The profit margin on low value-added export goods is very thin. Accordingly, although export countries strive to boost innovation and cut costs, when wages go up, it is highly likely that MNCs switch to a different low cost producer country.

This global wage arbitrage is wiping out some countries’ productive capacity. Productive capacity is a real income generator, so keeping a nation’s productive capacity intact is a matter of economic sustainability.

A nation has to reassess its globalization strategy and big business-centered industrial structure, bewaring global forces: who they are and how they are making profits.

In the meantime, the Korean media outlets report that the Korean manufacturing SMEs are experiencing a labor shortage mainly because the Korean workers tend to avoid physically-demanding jobs.

Why Did HP CEO Get Ousted?

Among other things, HP’s R&D was cut from 9% to 2% in the last 4 years.

I used to work for HP in Palo Alto and I’ve followed the changes at HP over the years. I remember working at HP was a very different experience from that at GE in terms of corporate culture and management practices.

I’m hopeful that HP Chief’s departure will trigger constructive turnaround for HP.

On another minor note, I recently started to swim for the first time in a long time for my health (to ease my shoulder pain). One of the best parts living in Silicon Valley was to swim laps at an outdoor swimming pool in Mountain View (I’ve gained 8 pounds since then). It’s almost impossible to swim laps outdoor here in Seoul since weather gets too humid to swim during the summer. I miss those days.

From the New York Times:

Here’s a guy who walked into a very troubled situation, replacing Carleton S. “It’s All About Me” Fiorina, and oversaw what appears to be a magnificent turnaround. In his five years at H.P., every metric Wall Street uses to judge companies had gone in only one direction: up.

Its 2009 revenue was $115 billion, up from $80 billion when he took over. Four years ago, H.P. even leapt past mighty I.B.M. in revenue, making it the country’s biggest technology company. Its average annual 18 percent profit increases were remarkable given the company’s mammoth size. And the stock price more than doubled on Mr. Hurd’s watch.

Stories about Mr. Hurd lavished praise on his no-nonsense style. H.P. under Mr. Hurd has “become the benchmark for efficiency in an industry known more for its whiz-bang appeal than its operational excellence,” wrote Adam Lashinsky of Fortune in 2009. Four months ago, Forbes put Mr. Hurd on its cover, attributing H.P.’s success to “dramatic cost-cutting” and “a brutalizing culture of accountability.”

In the press release, H.P. noted that while a claim of sexual harassment had been made, an investigation had cleared him of the charges. Instead, the company alluded vaguely to “violations of H.P.’s standards of business conduct.”

The consensus in Silicon Valley is that Mr. Hurd was despised at H.P., not just by the rank and file, but even by H.P.’s top executives. (Perhaps this explains why Ms. Lesjak was so quick to denigrate him once she took over.) “He was a cost-cutter who indulged himself,” was one description I heard. His combined compensation for just his last two years was more than $72 million — a number that absolutely outraged employees since their jobs were the ones being cut.

Rob Enderle, a well-known technology consultant, noted that in recent internal surveys, nearly two-thirds of H.P. employees said they would leave if they got an offer from another company — a staggering number. “He didn’t have the support of his people,” Mr. Enderle said.

After Mr. Hurd’s resignation, an anonymous H.P. employee wrote on the Internet: “Mr. Hurd cares about one thing, how much money is in it for him. As an H.P. employee I see it every day. We don’t have the tools to do our job, but he isn’t doing without anything, and doesn’t care.”

Charles House, a former longtime H.P. engineer who now runs a research program at Stanford University, openly rejoiced when he heard that Mr. Hurd was leaving. “I think the sexual harassment charge was a total red herring,” Mr. House told me. He didn’t care. “I was delighted,” he said.

Mr. House’s brief against Mr. Hurd went well beyond his outsize compensation and penchant for cost-cutting. As Mr. House saw it — indeed, as many H.P. old-timers saw it — Mr. Hurd was systematically destroying what had always made H.P. great.

Mr. House was also offended by Mr. Hurd’s dictum that H.P. executives had to resign from all civic boards, as well as his decision to cut off many of H.P.’s philanthropic activities. “H.P. has always been a model corporate citizen,” Mr. House said.

http://www.nytimes.com/2010/08/14/business/14nocera.html?_r=1

China’s Income Gap Propels Social Strains

How are things in state-controlled capitalism like China different from those in Western crony capitalism? It seems that as far as corruption, speculation and income disparity go, not so much.

From Market Watch:

China's income gap is far wider than official statistics suggest, underscoring a serious social threat that demands action.

What are actual income levels for Chinese households? How wide is the nation's income gap?

Official statistics in 2008 said China's annual per capita income was less than 16,000 yuan ($2,363). Households with the highest incomes accounted for 10% of the total population, with these annual disposable incomes averaging less than 44,000 yuan.

But do these figures reflect the real income situation of Chinese people?

http://www.marketwatch.com/story/shedding-light-on-chinas-shadow-income-2010-08-13?siteid=rss&rss=1

Korea’s Trade Deficit with Japan Hit Record High

Korea’s trade imbalance with Japan is nothing new. Korea imports many capital goods, core components and material from Japan in the high tech sectors.

It was a problem 10 years ago. It is still a problem. What is the reason for that?

From Yonhap:

South Korea's trade deficit with Japan reached an all-time high in the first half as the country imported more industrial components and machinery from its neighbor, government data showed Friday.

According to the data by the Bank of Korea (BOK) and the Korea Customs Office, Seoul's trade deficit with Japan reached US$18.07 billion in the January-June period as local companies exported $12.83 billion worth of goods to Japan, with imports amounting to $30.90 billion.

South Korean companies rely on Japanese partners to provide them with parts, components and manufacturing equipment that cannot be made locally. This reliance translates into a rise in the trade deficit with Japan whenever there is an overall increase in Korea's exports.

http://english.yonhapnews.co.kr/news/2010/08/13/34/0200000000AEN20100813001800320F.HTML

Laurence Kotlikoff of Boston University: The U.S. Is Bankrupt

From Bloomberg:

Some doctrinaire Keynesian economists would say any stimulus over the next few years won’t affect our ability to deal with deficits in the long run. This is wrong as a simple matter of arithmetic. The fiscal gap is the government’s credit-card bill and each year’s 14 percent of GDP is the interest on that bill. If it doesn’t pay this year’s interest, it will be added to the balance. Demand-siders say forgoing this year’s 14 percent fiscal tightening, and spending even more, will pay for itself, in present value, by expanding the economy and tax revenue. My reaction? Get real, or go hang out with equally deluded supply-siders. Our country is broke and can no longer afford no- pain, all-gain “solutions.”

http://www.bloomberg.com/news/2010-08-11/u-s-is-bankrupt-and-we-don-t-even-know-commentary-by-laurence-kotlikoff.html

The Dallas Fed: Can the Nation Stimulate Its Way to Prosperity?

From Zero Hedge:

the real titles is - "Can The Nation Stimulate Its Way to Prosperity" in which the author concludes wisely: "While the overall weight of the evidence suggests the stimulus plan has provided a short-term boost, it’s unclear exactly how large this boost has been. What is clear is that stimulus funds have exacerbated near-term fiscal imbalances." Mm hmm. More taxpayer capital well-spent. Yet in the paper is contained the following chart which we hadn't seen in a while, and which says all one needs to know about not only the real benefits from the stimulus (as opposed to those limited strictly to Wall Street), but also is the best grade card of the Obama administration's economic "prowess" to date.

http://www.zerohedge.com/article/dallas-fed-reminds-economy-doing-much-worse-administrations-worst-nightmare

Japan Losing Its Cultural Strength

From Daily Finance:

http://www.dailyfinance.com/story/careers/japans-economic-stagnation-is-creating-a-nation-of-lost-youths/19580780/?icid=mainhtmlws-main-ndl2link1http%3A%2F%2Fwww.dailyfinance.com%2Fstory%2Fcareers%2Fjapans-economic-stagnation-is-creating-a-nation-of-lost-youths%2F19580780%2F&sms_ss=email

Special Report on China’s Property Bubble

Who will be suffering most as a consequence of China’s policy decisions?

From Reuters:

China has put big money down on a momentous gamble: rush to build new cities in its poor interior, then wait for people to come and help drive the economy to a new stage of growth.

In the first phase of urbanization, from the start of the country's post-Mao reform era in 1978 to the present, rural citizens began migrating to booming coastal towns from Tianjin in the north to Shenzhen in the south. About 140 million made the trek last year.

Few of these migrants stay on. The hukou system of residency registration deprives them of benefits, such as public education, away from their home villages. Only 19 percent of rural migrants had settled permanently in cities as of 2004, according to the National Bureau of Statistics.

In the new phase of urbanization, the government's strategy is not to move farmers to big coastal cities, but to draw them to new urban areas in the hinterland. Its clearest expression came in the Communist Party's No. 1 Document in January, a policy blueprint for 2010. In it, China vowed to reform the hukou system by giving rural citizens the right to the same services as urbanites -- but only if they move to small cities within their own province.

By 2025, the country will have 221 cities with populations of a million or more, compared to 35 in Europe, according to a report by McKinsey & Co, the consultancy firm. China had 108 such cities in 2004.

But whereas work awaited migrants who flocked to factories on the coast over the past two decades, the creation of cities and employment by decree in the interior is less of a sure thing.
China tried once before to develop small cities in a hukou reform experiment in the 1990s.
"There was not much success because of the limited employment opportunities and poor public services in small cities," said Tao Ran, an economist at Renmin University in Beijing. The modern furnishings in Duan and Rang's apartment in Xiangzhang Garden cannot gloss over Gushi's shaky prospects for creating lasting jobs. Duan earns about 2,000 yuan ($295) a month decorating homes. But officials fret the property sector, the pillar of the town's economy, will suffer as empty apartments pile up.

http://www.reuters.com/article/idUSTRE6721D320100803?feedType=nl&feedName=ustopnewsearly

Big Business and the U.S. economy

Yves Smith (pseudonym) at Naked Capitalism was interviewed on CSPANS re big corporations and the U.S. economy. She has degrees from Harvard and work experiences at Goldman Sachs and McKinsey. She is critical of large investment banks’ practices along with the U.S. economic policies and published a book titled “Econned” this year.

I like people who have intellectual integrity (They seem rare these days).

http://www.nakedcapitalism.com/2010/08/we-speak-on-cspans-washington-journal-about-big-corporations-and-the-economy.html

The Rich and the Rest of Us

Dr. Reich’s take on much-publicized news story re Bill Gates and Warren Buffet promising to give at least half of their wealth to charity.

From his blog:

Forty of America’s richest families or individuals – almost all billionaires – have pledged to donate at least half their fortunes to charity. The total is a whopping $125 billion. Warren Buffett and Bill and Melinda Gates reached out to some 80 members of the Forbes billionaires list, seeking their pledges.

I think it’s admirable that Bill and Melinda Gates and Warren Buffett give so much to charity and have corralled other billionaires to do the same.

But I’m also appalled at what this reveals about how much money is now concentrated in so few hands. It’s more evidence we’re back in the late nineteenth century when robber barons lorded over the economy and almost everyone else lost ground. The Vanderbilts, Carnegies, Rockefellers made so much money they too could give away large chunks to charity and still maintain their outsized fortunes and their power and influence.

Most telling is how much wealthier the richest have become over the past year. Forbes Magazine’s list of the world’s billionaires (40 percent of them Americans), show them with an average net worth of $3.5 billion – and an average increase of $500 million in the last 12 months.

America’s median hourly wage, meanwhile, dropped last year, and it continues to drop. That’s not even counting the 15 million Americans still out of work.

Most Americans don’t need charity. They need good jobs.

http://robertreich.org/post/905177795/the-rich-and-the-rest-of-us

Indicators To Assess Chaebols’ Role and Performance

Much literature on Chaebols tends to focus on its own growth strategy, its business/capital/governance structure, and management practices. Yet, there are some underlying issues missing re Chaebols’ role and performance in the overall economic/social/political/technological landscape of Korea.

Some sample questions would be:

-How have they contributed to the job/income growth of Korea?

-How have they contributed to building industrial capacity?

-To what extent have technology competence generated technology spillover effects?

-How have they contributed to entrepreneurial growth?

-To what extent have their structural problems got fixed since the 1997 financial crisis?

-Where has their profit recovery come from since the 1997 financial crisis?

-What effects have Chaebols becoming MNCs had on the Korean economy?

Specific indicators associated with these questions need to be analyzed.

Worsening SMEs Business Sentiment

MBC News in Korea reports that according to the Bank of Korea, BSI (The Business Survey Index) on business conditions in the manufacturing industry of SMEs for July was 99 while that of big business was 112. SMEs also show the gloomy prospects for August.

In the case of the U.S., Naked Capitalism runs a similar piece on the U.S. SMEs.

http://www.nakedcapitalism.com/2010/08/small-business-sentiment-hits-new-low.html

The Engine of Job Growth

In order for an economy to turn around, there should be the drivers for the job/income growth.

Where is the job growth and income growth going to come from?

How have big businesses contributed to net employment increase?

This is why SMEs, not chaebols, would be the most likely drivers of economic rebound.

Whitney’s Bearish View on Housing and Financials

Whitney’s latest interview on CNBC

From Zero Hedge:

Meredith Whitney appeared on CNBC earlier and was about as bearish as ever, not only on financials, but on housing as well. In addition to saying that she expects the housing market to get worse in Q3 and Q4, the maven again reiterated the blatantly obvious, namely that all the recent earnings beats by financials have been an accounting sham driven by:

-Provisioning for less future losses, by reducing NPLs in the current quarter, thus generating profits out of manipulated air (particularly relevant for HSBC's results yesterday, which were the main factor in pushing the market 25 points higher)

-Increasingly more difficult for consumers to get loans. Not much of an issue - Obama will simply blame this on the previous regime.

-And the glaringly obvious, i.e., that all European banks sit on bloated amounts of largely overvalued sovereign debt. Should another sovereign risk flaring appear (and it is Zero Hedge's belief that this will occur promptly, as soon as the European vacation season is over), it will be time to dig up the old skeletons of financial insolvency once again, only this time with EUR LIBOR and Euribor about 100% higher than where they were in May.

http://www.zerohedge.com/article/meredith-whitney-even-more-bearish-housing-and-financials

China Exploiting and Investing in Africa

We all know that China is the world’s biggest creditor nation.

China is using that money in Africa.

Why does China see the opportunity in Africa?

From Fast Company:

While America is preoccupied with the war in Iraq (cost: half a trillion dollars and counting), and while think-tank economists continue to spit out papers debating whether vital resources are running out at all, China's leadership isn't taking any chances. In just a few years, the People's Republic of China (PRC) has become the most aggressive investor-nation in Africa. This commercial invasion is without question the most important development in the sub-Sahara since the end of the Cold War -- an epic, almost primal propulsion that is redrawing the global economic map. One former U.S. assistant secretary of state has called it a "tsunami." Some are even calling the region "ChinAfrica."

There are already more Chinese living in Nigeria than there were Britons during the height of the empire. From state-owned and state-linked corporations to small entrepreneurs, the Chinese are cutting a swath across the continent. As many as 1 million Chinese citizens are circulating here. Each megaproject announced by China's government creates collateral economies and population monuments, like the ripples of a stone skimmed across a lake.

Beijing declared 2006 the "Year of Africa," and China's leaders have made one Bono-like tour after another. No other major power has shown the same interest or muscle, or the sheer ability to cozy up to African leaders. And unlike America's faltering effort in Iraq, the Chinese ain't spreading democracy, folks. They're there to get what they need to feed the machine. The phenomenon even has a name on the ground in the sub-Sahara: the Great Chinese Takeout.

http://www.fastcompany.com/magazine/126/special-report-china-in-africa.html